Good financial practice for trustees

by Aviva Community Fund | Nov 12, 2019 | Risk protection for community causes

Good financial practice for trustees

Trustees are there to act in the best interests of a charity, its aims and its service users. Managing the charity’s resources responsibly and keeping it in good financial health is at the heart of this. So, trustees should be aware of their potential liability if things did go wrong and must be clear on the limits and restrictions of any indemnity insurance. 

As a trustee you should be regularly reviewing and agreeing the charity’s plan for achieving its goals, including how money is managed. It’s good to remind yourself that without a sound financial base it will be almost impossible for the charity to succeed in its aims. Financial management includes the money coming in and going out, as well as how resources are used. 

A good starting point for any trustee is to understand the filings requirements applicable to your charity’s size and structure. These can be quite different, although your overall duty to act in your charity’s best interest and take reasonable care remains unchanged. It’s best practice for trustees to: 

  1. Agree a clear reserves policy as part of its overall strategy. These reserves should come from unrestricted funds and are important to give your charity financial security and resilience.
  2. Understand whether and when it is possible for you to pay trustees and connected parties, and when Charity Commission permission will be required. Some circumstances, like struggling to recruit trustees, permit you with permission from the Charity Commission to pay a trustee for being a trustee or to compensate trustees for loss of earnings. When making payments to trustees or those connected to trustees, you must be mindful of conflicts and ensure decisions are taken in accordance with your governing document.
  3. Be aware of your charity’s solvency and make sure that, as a trustee, you ask probing questions as required. Trustees must be sufficiently informed regarding the charity’s finances to spot issues and manage risks early – appropriate financial management and controls will assist with this. If your charity is at risk of insolvency you should seek professional advice.
  4. Be aware of financial crime such as fraud, as well as anti-bribery and corruption laws – trustees must protect the assets of the charity. All charities should have robust procedures in place based on a risk-based approach. 
  5. Adapt your governance procedures to match requirements. For example, if the charity is experiencing significant growth or financial hardship, trustees may need to meet more often to deal with associated issues.
  6. Understand the Charity Commission’s ‘Serious Incident Reporting’. Trustees must decide when an incident requires reporting to the Charity Commission and provide sufficient information without delay – if you fail to report a serious incident the Charity Commission may take regulatory action.
  7. Ensure you have legal and financial advice where required – throughout the life of your charity you may need to seek professional advice on financial matters. It is important that trustees understand when professional advice should be sought. Trustees should be aware of their potential liability if things did go wrong, and must be clear on the limits and restrictions of any indemnity insurance.

You can find out more about managing a charity’s finances at the Charity Commission website 

This article was kindly contributed by Aviva’s international law firm partner DAC Beachcroft’s Charities & Not-for-Profit practice.

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